The Texas State Securities Board has issued its seventh cease-and desist order to halt an unregistered cryptocurrency scheme, this time involving a convicted felon who was also selling unregistered promissory notes in an unrelated marijuana growing operation in California. Texas, which was the first state securities regulator to enter an order against a cryptocurrency firm and has entered the most orders of any state, separately issued a 14-page report outlining the widespread fraud found during a four-week investigation into cryptocurrency offerings (In the Matter of Estrada Trucking Inc., Order No. ENF-18-CDO-1861, April 5, 2018).
Cryptocurrency trading. The latest Texas order alleges that Mark J. Moncher has been offering investments in an unregistered cryptocurrency trading program that purportedly delivers returns of 8 percent per week. The order claims that Moncher, who controls Financial Freedom Club Inc., concealed his 2009 conviction for mail and wire fraud while targeting Texas residents with online advertisements for the program. Moncher and Financial Freedom Club are allegedly offering the investments together with 911MoneyStore Inc., a New York-based company headed Frank Dalotto.
According to the order, Dalotto and Moncher have encouraged investors to commit felony offenses in connection with their initial investments in the trading program. Investors are allegedly told that after making the initial $2,000 investment using a charge or debit card, they will receive an invoice for the purchase of "a gold Seiko watch which you’ll never get." If the "investment goes bad," Dalotto allegedly told investors, investors can claim they never received the watch and request a refund from the financial institution that issued the card.
Marijuana loans. The order also alleges that Financial Freedom Club, Moncher, and a company known as Capital Cash are selling unregistered promissory notes in a marijuana growing operation based in an undisclosed location in California. The marijuana investment is structured as an unsecured loan to Estrada Trucking Inc., and promises that an initial $10,000 investment will generate a 50 percent return every four weeks. The order claims that none of the companies selling the unregistered Estrada notes are disclosing to investors the risk of investing in marijuana operations, including the adoption of state laws and regulations governing such operations.
Enforcement report. In response to the sharp increase in the number of cryptocurrency investment opportunities being marketed to Texas residents, the Texas State Securities Board’s Enforcement Division launched in mid–December a four-week investigation into securities offerings tied to virtual currencies. Attorneys and investigators opened 32 investigations over the course of the four weeks. Among their reported findings were the following:
- No promoters were registered to sell securities in Texas.
- Only 11 promoters provided potential investors with a physical address.
- 19 of the companies claimed they would in some way use Bitcoin, while seven promoters offered securities tied to a new cryptocurrency.
- Six of the offerings involved payment of a commission to investors who recruited new investors into the scheme.
- At least five promoters guaranteed returns, some as high as 40 percent per month.
"There is a lot of hype surrounding cryptocurrencies, but the companies offering investments are often not disclosing all the information investors need to make an informed decision," said Texas Securities Commissioner Travis J. Iles in a news release. "Investors risk giving their hard-earned money to anonymous promoters hiding behind websites who have no intention of making good on their promises."
The order is No. ENF-18-CDO-1861.
MainStory: TopStory Enforcement FraudManipulation NewsFeed TexasNews
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